Keeping Your Insurance Policy

The Obama administration announced a new policy on Wednesday that will allow many people to renew their existing insurance policies for two more years even though the policies don’t provide the comprehensive coverage and consumer protections required by the Affordable Care Act. The move is designed to provide political cover for Democratic senators facing tough re-election campaigns in Republican-leaning states where the president is especially unpopular.

The Democrats have been hit with a barrage of attack ads from conservative political-action groups highlighting the cases of individuals who complained that they faced higher premiums when their old (less comprehensive) policies were canceled and they were forced to buy new (and better) policies on the health care exchanges established by the reform law. Now the last date for renewing the old policies has been pushed past the 2014 midterm elections, reducing the likelihood of complaints on the eve of voting.

This policy change had the immediate, unfortunate effect of giving Republicans another convenient excuse to bash the Affordable Care Act as a failure that should be repealed. In truth, it poses no threat to health care reform and will have no impact on the vast majority of Americans, who are covered by employer plans or public programs. The impact on people who buy their own insurance on the individual market is hard to gauge but is likely to be small and vary from state to state.

The administration is not decreeing that everyone be allowed to renew an existing policy. It is leaving that decision to insurance plans, which must decide if they want to continue offering their less-comprehensive policies, and to state insurance commissioners, who must decide whether to allow them to do so. When the administration decided in November to allow a one-year extension, 21 states and the District of Columbia refused to let insurers extend old policies and 28 states allowed it. Whether the new two-year extension will change any state’s approach is uncertain.

There are drawbacks to allowing continuation of these policies. For starters, some people who have skimpy coverage may be in for a rude shock if they develop a costly illness. On average, the people who have the older policies are likely to be healthier than the people covered by policies on the new exchanges.

These healthier people are needed to broaden the risk pools and keep average premiums down on the exchanges. Nobody knows how many people will be able to or want to retain their old policies. But if too many do, the exchanges’ risk pools could become slightly sicker and premiums could go up.

Administration officials point to an analysis by the RAND Corporation, which estimated that enrollments in the exchanges could drop by 500,000 people because of the extension last November. That’s a small segment of the roughly 11 million people who have health insurance policies from the individual market, usually under one-year contracts. There is always enormous turnover in the individual market; about half of the policyholders leave the market within 18 months, usually because they get a job with health benefits or become eligible for Medicare.

Ideally, President Obama would not have extended the period for retaining the less-comprehensive policies, but in the current political environment, he opted to take a step to protect health care reform against a Republican takeover in the Senate.

Extending the old policies will allow some individuals more time to look at the options on the exchanges. They may be pleasantly surprised at the comprehensive coverage and the availability of subsidies for people with modest incomes.